Wow. After over five years, my total net worth is FINALLY back to where it was at the end of October 2007. At the time I had about 85% of my net worth in the stock market, I had a business that was kicking out incredible monthly cash flow, and my house had about $225k equity. Now, the business is long gone (it died in December 2007) and I've cycled through numerous ways to make a living. My house is worth about $400k less than at the peak. My stocks have risen dramatically from the bottom of the market, but I've also reallocated to a 60/40 split which is appropriate for my age. Since my net worth dwarfed what I could realistically save, I had to wait for the markets to cooperate to get back to even.

It's amazing to finally be back where I was, but with the benefit of knowing now what I didn't know then. Oh what a ride.

pkcrafter wrote:I'm also glad to hear you've recovered. When did you go to 60/40? Did you hold 85% stock through the drawdown and back up? You must have aged 25 years since 2007 to go from 85/15 to 60/40.

All kidding aside, what would you tell new investors after this experience?

Paul

I actually did feel like I grew up during that time. In 2009, I was highly, highly stressed. The vast majority of the rebalancing out of equities occurred during many of the temporary peaks in 2011/2012. Each time equities went on a run, I took a little off the table. It's funny...back in 2007 I owned about 30 different funds, ETFs and individual stocks. Now I own about three. (Plus two funny money stocks just for kicks.)

livesoft wrote:So during those last 5 years, did you reduce your annual expenses commensurate with lower net worth?

Yes, big time. First off, I finally got hold of what my annual expense actually are by using Mint. I refinanced my home four times from a starting fixed rate of 6.125% down to 2.75%. (And shortened the term from 30 years to 15 years so it'll be paid off around the time the kiddos go to college.) I had to bring a bunch of cash to the table on an underwater home to be able to refi...that was a big pill to swallow, but I ultimately decide I was never going to walk away from my obligation and that paying it down was locking in a guaranteed rate of return. I paid off my wife's student loan and the mortgage on our vacation home. And I agitated my way into having roughly the same health insurance coverage (slightly higher deductibles) for half the monthly premium as before. Basically, after my business and investments went off a cliff in 2007, I woke up each day and asked myself, "How can I make and/or save money today." Also, I started hanging out on the Bogleheads site for practical advice and moral support. Don't get me wrong...even when my net worth was sliced in half I was in better shape than 99% of Americans, but I believe firmly that the stress I felt was equal to the stress anyone feels. The stress was palpable in 2009 and I committed to getting to a place where finances won't stress me out. Thank you, Bogleheads, for the support along the way!

Being as specific as you feel like, can you give more detail about your business? Going from 'kicking out incredible monthly cash flow' to completely defunct in two months sounds incredibly harrowing. Did you lose a major client? Make a fatal mistake?

I feel like I was just born at the right time. Graduated law school in 2008, started my 401(k) shortly thereafter. Bought a house in 2011. Were I a few years older I'd probably be feeling the pain instead of the boon of the stock market and bottom of the RE market.

I'm sure there will be some downs in my life though and when that comes I'll be inspired by stories like yours.

The business: It was an online lead-generation business. I was generating about 2000 leads/day for real estate agents/mortgage brokers. For four years the business was incredible, involving about 30 minutes/day of work and earning literally millions in profit. Then, in a span of one week in December 2007, ALL three of my major customers cancelled, all of whom had worked with me for four years. Ouch. That's what it looks like when a business falls off a cliff. So I got an executive position with a company and was laid off eight months later when the financial crisis hit. So I bought a business, but it wasn't right for me, so I sold it six months later at a loss. Then I found a commission-only sales job that I actually really enjoy, and became the top dog and have remained so for the past three years. Whatever hit me, I just decided to keep on keeping on and looking for new ways to make money and trim expenses.

Real vs. Nominal: I'm back up in nominal, not real terms. That said, I am not including the value of my new vehicle nor the six figures I've given to a charitable endowment in my net worth calculation, so if I hadn't done either of those, I'd be closer to being back in real terms. (Also if my darned house wasn't worth $400k less than I paid for it!!!) More importantly, I've taken lots of steps to reduce my monthly expenses, so my personal level of inflation is probably actually deflation over the past five years. What has changed is my outlook. In 2007 I felt as if the stock market had already had it's downturn in 2000-2002, and therefore I was relatively safe with such high equity exposure. I tended to focus too much on the opportunity cost of missing the next rally. Now, I'm focusing a lot more on what I need to live the life I want, and trying to have appropriate risk/reward exposure for those goals and my age. Again, thanks Bogleheads and Jack Bogle for the kick in the pants.

325e wrote:Wow, very cool. Thanks for the detail. We can all learn a little bit from different situations.

I can only imagine how difficult it was to keep your head on straight when you go from raking it in, to out of business.

To be honest, I always considered myself very lucky. Very, very few people ever get the opportunity I did, so even if the market took it all away I'd have nothing to pity myself about. That said, the stress certainly did throw me for a loop.

RenoJay wrote:To be honest, I always considered myself very lucky. Very, very few people ever get the opportunity I did, so even if the market took it all away I'd have nothing to pity myself about. That said, the stress certainly did throw me for a loop.

Being able to recognize and be thankful for one's own good fortune, even in trying times, is one of the greatest gifts of all. Congratulations on the comeback.

Yea, same thing happened to me and wrote a book about it. We recovered from the tech crash and had a dent in our portfolio in 2008. It took us about ten years to recover. We confronted two of the biggest stock market crashes in history and still retired early with a comfortable nest egg.Congratulations

Public School K-12 Educators: "Ask NOT what your annuity sales person can do for you, ask what you can do to be a Do-It-Yourselfer (DIY)."

sschullo wrote:Yea, same thing happened to me and wrote a book about it. We recovered from the tech crash and had a dent in our portfolio in 2008. It took us about ten years to recover. We confronted two of the biggest stock market crashes in history and still retired early with a comfortable nest egg.Congratulations

Did you recently offer your book for free on Kindle to Bogleheads? If so, I downloaded and read it. It was a great story. I also remember the quote from you (or was it your partner?) in Jason Zweig's book about the dog on the freeway. Thanks for the free download! I enjoyed your story. I also wrote a book, but it was about my entrepreneurial ups and downs as opposed to my investing mishaps.